However, the FTSE 100 Index swung back into positive territory, up 41.71 points to 6,849.38, after stocks rallied amid easing concerns over the financial health of German lender Deutsche Bank.

Shares in Deutsche Bank closed up 2% to 10.77 euro on the Xetra market after it bolstered its balance sheet by £935 million by selling its Abbey Life pensions book.

It followed a two-day sell-off sparked by fears that a hefty settlement proposal tabled by US authorities could deal a hammer blow to its capital strength.

The US Department of Justice (DoJ) has hit the bank with a 14 billion US dollar (£10.5 billion) settlement proposal following a probe into the German lender's sale of mortgage-backed securities during the financial crisis.

The German government has denied that is preparing a rescue plans for the lender, while Deutsche Bank's chief executive John Cryan told Bild that government support was "out of the question".

It came as Credit Suisse chief executive Tidjane Thiam warned that the banking industry was in a "very fragile situation" as a "relatively minor piece of news" could trigger an extreme movement in share prices.

However, investors cheered Royal Bank of Scotland on the London market after it announced that it would pay 1.1 billion US dollars (£845 million) to a US regulator to settle two claims over mis-sold mortgage bonds in the run-up to the financial crisis.

The taxpayer-backed lender climbed 1.8p to 176.4p after it reached the agreement with the National Credit Union Administration Board, which regulates credit unions in America.

Across Europe, Germany's Dax and the Cac 40 in France both closed 0.7% higher.

On the currency markets, the pound dipped back below the 1.30 US dollar mark after Minouche Shafik, a key member of the Bank of England's Monetary Policy Committee (MPC), said further stimulus is likely to be needed as the UK stomachs a "sizeable economic shock" from the Brexit vote.

Sterling was down 0.16% against the dollar at 1.299 US dollars and was marginally higher against the euro at 1.160 euro.

The oil price regained some ground after plummeting in the previous session when Iran brushed aside an offer from Saudi Arabia to curb its oil output in exchange for Riyadh trimming supply.

Brent crude rose 0.1% to 46.02 US dollars amid hopes that Opec might still agree an oil output-limiting deal later this year.

In UK stocks, Royal Mail was among the biggest fallers on the London market after Deutsche Post struck a deal to acquire UK Mail for £242.7 million.

Shares in Royal Mail were off more than 3% or 16.8p to 486.2p after the German postal giant said on Wednesday that it is snapping up UK Mail as part of a European expansion drive.

The takeover will create the second largest integrated mail and parcel operator in the country behind Royal Mail.

The biggest risers on the FTSE 100 Index were Sky up 35p to 882.5p, Smiths Group up 56p to 1443p, Rio Tinto up 65.5p to 2,525.5p, Dixons Carphone up 9.1p to 365.7p.

The biggest fallers on the FTSE 100 Index were Sainsbury's down 9.8p to 241p, Royal Mail down 16.8p to 486.2p, Worldpay down 4.2p to 292.4p, Imperial Brands down 50p to 3,930p.